25 Small Business Insurance Mistakes That Cost You Money

Running your own business increases your liability. For this reason, it’s important to protect your business by insuring both your company and your employees. However, some small business owners commit mistakes when taking out an insurance policy, costing them money. We’ve talked to the experts and found the most common small business insurance mistakes that can increase your business expenses.

Here are the top 25 small business insurance mistakes you should avoid:

1. Not Having the Right Insurance for Online Sales
Andy Wood, Executive Vice President – Retail Operations, Insureon
Online sales help boost many small businesses’ revenue. However, defective products can lead to expensive lawsuits. Business owners should have a product liability insurance to help protect them against these types of lawsuits. Also, a contingent business income (CBI) coverage can protect policyholders against economic losses caused by damage to property owners.

Gerri Detweiler business insurance mistakes tips from the pros

2. Not Checking Your Business Credit Before Getting a Policy
Gerri Detweiler, Education Director, NAV
Small business owners often don’t realize that the insurer may check their business credit profile as part of the underwriting process. A poor business credit history may make it difficult or more expensive to get the insurance they need. Before you apply for any kind of business insurance, consider checking your business credit profile to see where you stand.

For more information, read our guide on how to check and decipher your business credit score.

Michael Dinich business insurance mistakes tips from the pros

3. Not Getting Liability Insurance
Michael Dinich, Retirement & Estate Planner, Michaeldinich.com
Many small business owners assume an LLC or Corp will protect them from lawsuits. However, unexpected events can happen that may lead to a lawsuit – and a lawsuit can be costly and can shut down a small business. It’s important for every small business to have appropriate liability insurance for their industry/trade. You can get discounted insurance by joining industry organizations.

4. Not Buying an Errors & Omissions Policy
Mike Payne, Commercial Property & Casualty Insurance Agent, My Knowledge Broker
If you are a manufacturer, you should consider buying an E&O (errors and omissions) policy. E&O covers claims made by clients for inadequate work or negligent actions from products made by your company. The legal costs associated with a major lawsuit could put a small and growing business under great distress.

To learn more, check out our article on errors and omissions (E&O) insurance.

Dan Burke business insurance mistakes tips from the pros

5. Not Having a Cyber Insurance Policy
Dan Burke, Vice President and Cyber Product Head, Hiscox
Cyber insurance protects businesses and individual users from internet-based risks. It is designed to help an organization mitigate risk exposure by offsetting costs involved with recovery after a cyber-related security breach. Unfortunately, only around 58% of small businesses have cyber insurance. There are businesses who incur losses due to cyber-security risks, and having a cyber insurance can help you prevent such risks and losses.

Read our article for more information on cyber liability insurance, including cost, coverage details, and where to get quotes.

Chris Abrams business insurance mistakes tips from the pros

6. Not Taking Advantage of IRS Code Section 162
Chris Abrams, Founder, Abrams Insurance Solutions
Section 162 allows for an Executive Bonus plan. An executive bonus plan is a fringe benefit, funded with life insurance, given to a select group of key employees and/or business owners. It provides protection to the executive’s family during their working years, and when it’s funded with permanent life insurance, it can also provide tax-advantaged supplemental retirement income.

Joseph Deutsch business insurance mistakes tips from the pros

7. Not Understanding the Limits & Terms of the Insurance Policies
Joseph Deutsch, Owner, The Fidella Agency
One common mistake in purchasing an insurance is not understanding the true ramifications of all the limits and terms of the policies. Insurance policies can be tricky with many industry-specific terms that need to be understood. It is crucial to read every single exclusion and endorsement in the insurance policy and make sure you understand all details before you agree with the terms.

Ben Taylor business insurance mistakes tips from the pros

8. Buying a Cheap Insurance Policy Online
Ben Taylor, Founder, Home Working Club
It’s easy to perform a Google search and buy a cheap insurance policy online. However, getting such a policy to pay out on a claim may well be far more difficult. Often, there will be terms and conditions hidden in the small print, such as not being covered for work done for clients in other countries. It’s important to really understand the policy you’re buying and discuss this with an insurance advisor.

Lingke Wang business insurance mistakes tips from the pros

9. Not Having Keyman Life Insurance on Partners or Key Employees
Lingke Wang, Co-Founder, Ethos Life Insurance and Ovid Life Settlements
One common insurance mistake is not having keyman life insurance on partners or key employees. This is a life insurance policy on the keyman’s life with the business as beneficiary. It can save a small business if that person dies or becomes disabled and can no longer work. The benefit amount helps offset what it would cost to find and replace the key employee.

Interested in learning more? Read our complete guide to key man life insurance.

Michael J. Perry business insurance mistakes tips from the pros

10. Buying a Policy Based on Price Rather than Value
Michael J. Perry, Vice President of Property & Casualty, CBIZ Insurance Services, Inc
Most small business owners treat insurance as a commodity and as a result, are buying based on price rather than value. When it comes to buying business insurance, one size does not fit all. It is critical that the insurance carriers understand your business and craft the coverage to meet your needs. Cheap policies are not always the best policies for your business.

Graham Mills business insurance mistakes tips from the pros

11. Not Providing Enough Essential Information
Graham Mills, Partner & Insurance Law Attorney, Newmeyer & Dillion LLP
It is crucial for the business owner to provide all the necessary information so that the insurance company will have an understanding of what the business does to identify the desired and needed coverage. Every business is different and so the risks associated with each business are not identical. Being able to buy the right insurance will depend on the accuracy of the information you share to your broker.

Jeff Witt business insurance mistakes tips from the pros

12. Not Getting an Umbrella Policy
Jeff Witt, AVP Commercial Lines Research and Development, Arbella Insurance
One common insurance mistake is not getting an umbrella insurance policy. Umbrella insurance is an extra liability insurance designed to help protect you from major claims and lawsuits. It does not only provide additional limits but also provides additional coverage not available in the underlying coverage. It also provides coverage for claims that may be excluded by other liability policies like false arrest, libel, and slander.

Jay Labelle business insurance mistakes tips from the pros

13. Not Having Your Property & Equipment Insured
Jay Labelle, Owner, The Cover Guy
Although liability insurance is probably the most important insurance for every small business, it is equally important to insure your business assets such as your business property and equipment. Business equipment insurance provides cover for loss or damage to property or equipment that you use for your business. If your business couldn’t function without expensive equipment, it’s essential to have sufficient business equipment insurance cover in place.

Bret Bonnet business insurance mistakes tips from the pros

14. Not Purchasing Business Interruption Insurance
Bret Bonnet, Co-Founder & President, Quality Logo Products
If you’re starting your own small business, it’s very important to purchase business interruption insurance. Business interruption insurance covers the loss of income that a business suffers after a disaster. This income loss may be due to the closing of the business facility or due to the rebuilding process after a disaster.

Mike Fusco business insurance mistakes tips from the pros

15. Inaccurately Forecasting Business Activity When Pricing Insurance Policies
Mike Fusco, Co-founder & President, Fusco & Orsini
If you don’t project proper levels of business activity, it could cause an inaccurate pricing your insurance policies. If you forecast gross sales and payrolls incorrectly, your insurance premiums will also be priced incorrectly. This gives you a false cost for budgeting and may also lead to unexpected audit bills.

Brad Plothow business insurance mistakes tips from the pros

16. Not Having Sufficient Disaster Insurance
Brad Plothow, VP of Marketing & Communications, Womply
Most small business owners are not insuring themselves sufficiently against the threats they consider most damaging. Many small business owners with less than a month of reserves consider floods, fires, and other nature-related disasters as extremely damaging. However, only a few have disaster insurance, because some of them think that such disasters are very rare and that these disasters might not happen to them.

Thomas L. Santamorena business insurance mistakes tips from the pros

17. Thinking That a Business Owner’s Policy is Sufficient
Thomas L. Santamorena, Insurance Professional, Hiabe.com
Some small business owners think that a business owner’s policy (BOP) is sufficient to provide all the protection they need. A BOP bundles several types of coverage in one package, similar to the way a homeowner’s policy works, and it’s designed for small and mid-sized businesses. However, a BOP policy has limitations and may not provide all the coverage necessary to fully protect you, your business, and your assets.

Lisa Phillipson business insurance mistakes tips from the pros

18. Neglecting Safety Plans & Company Policies
Lisa Phillipson, CEO, Elpe Insurance Brokerage
It’s crucial for a business owner to devote sufficient time to creating a clear set of employment, operation, and safety policies and ensuring that these policies are strictly followed. Neglecting safety plans and company policies is a big mistake as this directly influences your insurance claims and potential premiums, both on the quoting and practice side of insurance.

Ashlin D. Hadden business insurance mistakes tips from the pros

19. Working with a “One-Size-Fits-All” Kind of Agency
Ashlin D. Hadden, Owner, Ashlin Hadden Insurance Agency
As a small business owner, you need to find an insurance agent who knows your business well. Do not rely on a “one-size-fits-all” kind of agency. You need to work with someone who knows and understands your risks and how to protect them. Work with someone who can provide you with reliable options that are customized based on your business’s unique circumstances and needs.

american express business insurance mistakes tips from the pros

20. Coverage Limits That are Too Low
Most business owners would rather settle for low coverage limits because they don’t want to over-spend on premiums. However, when something happens, this is one of their biggest regrets. American Express thinks it’s best to discuss your pricing and coverage options with your agent, as you’ll never know when disaster might strike your business.

magruder agency business insurance mistakes tips from the pros

21. Relying on Your Homeowner’s Policy for Coverage
Even if you are a home-based business, relying on your homeowner’s policy can land you in a lot of financial trouble if something goes wrong. According to Magruder Agency, your homeowner’s insurance can deny any business-related claim for coverage, such as damage or loss of equipment or injuries incurred from business-related incidents.

hegarty haynes business insurance mistakes tips from the pros

22. Paying for Insurance Policies that You Don’t Need
Not all business-related insurance policies are important for your business. One big mistake that many small business owners make is paying for commercial insurance that they don’t really need. Hegarty-Haynes Insurance, Inc. suggests consulting an insurance agent that knows your industry and has experience insuring small businesses to be able to provide you with the right options.

insureon business insurance mistakes tips from the pros

23. Using the Wrong Classification Codes for Workers
According to Insureon, using the wrong classification codes for workers affects your workers compensation insurance premiums. There are over 700 employee classification codes. Some professions are more hazardous than others, and you should pay higher premiums for those with higher-risk jobs. If you use the don’t use the correct classification code for each of your employees, you may be overpaying for your workers compensation coverage.

poms & associates business insurance mistakes tips from the pros

24. Trying to Do it On Your Own
When seeking business insurance, don’t try to do it on your own. Unless you’re a licensed agent working in the insurance industry, you may not understand all of the important and meticulous details required for planning a policy purchase. It can be difficult to know what you really need even if your company is small. Poms & Associates recommends partnering with an independent insurance broker to help evaluate your needs and budget.

fitsmallbusiness business insurance mistakes tips from the pros
25. Not Updating Your Insurance as Your Business Grows
Some business owners buy a policy and forget about it until it’s time to renew. As your business grows, your needs for protection change. It’s important to review your existing insurance policies and reassess your protection needs from time to time. You should regularly update your insurance based on your business’s current requirements.

Bottom Line – Small Business Insurance Mistakes
One of the biggest small business insurance mistakes you can make as a small business owner is failing to protect your business with the appropriate insurance. There are different types of business insurance and you may or may not need all of them, depending on the type of business you’re running. When buying a business insurance, make sure to avoid the above costly small business insurance mistakes as advised by the pros.